2008 may come eventually to be seen as the peak in the trend towards globalisation, the point at which the tide turned and the global spider’s web of supply chains and trade routes began to shrink.
For several decades we have witnessed a continued expansion in the trade between economies around the world, crisscrossed by container shipping and air transport, as every nation became more and more economically intertwined with everyone else. Efficient transport and communication allowed low wage economies to offer sites to sophisticated manufacturing for global export at highly competitive prices. Globalisation has had a profound impact on economies and societies around the world, but nothing lasts forever.
Globalisation involves allocating capital and resources to areas which can produce most efficiently and so provide the highest level of return. And while capitalism and globalisation can be credited with pushing innovation and growing the more backward economies of the world, they also share the less progressive trait of widening disparities in wealth. And it is inequality which is now driving political trends in the developed world.
Rightly or wrongly, many people viewed Brexit as a chance to vote against globalisation. With Nigel Farage seen as the poster boy for rising up against the establishment, many perceived this a decisive change of direction. A moment to say ‘No’ to continued interdependence and integration, with its overtones of corporate hegemony, and ‘Yes’ to seizing back control over your own country. After all, a side effect of globalisation has been the export of employment in manufacturing which, in retrospect, seems to have offered a stable job market and a sense of belonging.
While Brexit may be seen as a significant blow against globalisation, there is no doubt that the tide had already started to turn. Peaking in 2008, global trade (as a percentage of the world GDP) has been falling, with 2015 marking a noticeably sharp downturn. Prior to this, from 1988 until 2007, global trade had been growing at twice the pace of GDP according to the World Trade Organisation.
Away from the macroeconomic level we can see related changes in everyday life. The market for home grown produce has grown much bigger, with an emphasis on supporting local producers and cutting down ‘food miles’. Within Bristol, for example, we have the ‘Bristol Pound’; a currency that can only be used to buy from local businesses.
However, while changes in social attitudes are important, it’s technology that has the potential to play the pivotal role in reversing the trend of ever more globalisation.
Advances such as 3D printing (additive manufacturing) can make it cheaper and more efficient to make a product close to the purchaser rather than utilise materials and labour from elsewhere in the world and then ship the product home. It allows different products to be created with the same tool and without the requirement of mass production to achieve cost efficiency. With these breakthroughs the need for transportation and storage decline, with localised manufacturing working in step with local demand.
Renewable energy is also reducing the scale of global transportation. While fossil fuels require vast infrastructure to extract, refine and distribute, solar and wind power – while reliant on the elements – can be location specific. Tankers and shipping containers become less relevant, as does the dependence of nations across the supply chain on those with oil in their soil or inshore waters. This can change political alignments.
Virtual reality (VR) is another factor with the power to amplify the benefits and remove the restrictions inherent in technologies such a Skype and video conferencing. Interacting with a real person will always be preferable to watching a screen. For now, long distance business trips and meetings still have their place but there will be a point when VR improves enough to make it close enough to real life to make the trip a waste of time. The merits of business class plane travel will be irrelevant and the manner in which global business is conducted will be redefined.
So while politics and trade agreements might make the headlines, it may well be technology which quietly pulls the strings in the background and ushers us, albeit gradually, into a new age of regionalisation.
The above article by Jasper Thornton-Boelman, Assistant Fund Manager at Parmenion Investment Management, was first published by Parmenion Investment Management on 1st September 2016